Vancl, Cloudary take new IPO steps

Both Vancl and Shanda Cloudary are likely to make IPOs in March or April next year, leading a resumption of New York IPOs by Chinese tech firms if sentiment remains positive.

PUBLISHED : Thursday, 29 November, 2012, 11:47am
UPDATED : Thursday, 29 November, 2012, 11:47am

New signs are emerging that many Chinese firms waiting to make offshore IPOs won't be able to take advantage of a sudden window of positive sentiment that has suddenly appeared, and instead will have to target the late first quarter or second quarter of 2013. This sudden window of opportunity has caught nearly everyone by surprise, and few if any companies have completed the necessary preparations needed to make offerings before mid-December. The period from Christmas to Chinese New Year is typically dormant for new offerings due to all the holidays, meaning most new offerings will have to wait until March to try their luck if investor sentiment remains positive for that long.

The latest signs of a building IPO wave for next year are coming from 2 of the most often mentioned candidates, electronic literature company Shanda Cloudary and clothing retailer Vancl. Both have previously made extensive preparations for US IPOs, and Cloudary even made some public filings with the US securities regulator before later abandoning its plans due to chilly market sentiment. 

Let's start by looking at the latest news on Cloudary, which is reportedly planning an IPO in New York for next April, according to Chinese media reports citing unnamed investment banking and company sources. The reports say Cloudary is making necessary preparations to restart the IPO process, and will continue to use Merrill Lynch to underwrite the offering.

Cloudary would no doubt like to make the offering before the end of this year, but had essentially abandoned that possibility when prolonged negative investor sentiment looked unlikely to change. But the mood turned unexpectedly positive a week ago when commercially-focused social networking website YY (Nasdaq: YY) made the first successful IPO by a Chinese company in New York in more than a year. 

YY had to price its shares at the bottom of their indicated range, but even that was considered a modest success after several previous proposed offerings failed to even do that. Since their trading debut a week ago, the shares have surged 25 percent and now trade above the upper end of their pre-IPO price range. The only other company to make a major US IPO this year, discount online retailer Vipshop (NYSE: VIPS), has also seen its shares more than double in the last 2 months as confidence has returned to the sector.

YY and Cloudary have both recently turned profitable, and Vipshop looks set to turn profitable in the current quarter, reflecting investor sentiment that will strongly favor companies that are either in the black or very close to that stage in next year's IPO revival. With that reality in mind, Vancl is also trying to accelerate its move out of the loss column with word the company is cutting staff and scaling back its less successful operations in a bid to become profitable. 

Vancl confirmed it was making cuts, but denied reports that up to 25 percent of its staff were getting laid off. It also added the cuts are part of a slimming program that began early this year. Vancl was indeed reportedly cutting staff earlier this year, though I wouldn't be surprised it if is speeding up those cuts now that investor sentiment is finally improving towards Chinese IPOs.

If everything moves according to schedule and sentiment remains positive, I would expect to see both Vancl and Cloudary make public filings for their New York IPOs in late February or March, and for Vancl's report to show the company has either already attained profitability or will do so by the end of 2013.

Bottom line: Both Vancl and Shanda Cloudary are likely to make IPOs in March or April next year, leading a resumption of New York IPOs by Chinese tech firms if sentiment remains positive.